Fight over boxoffice trading wages on
Cantor likely to win CFTC approval Monday for first contractsAlthough Congress has agreed to a ban on trading derivatives based on movie boxoffice, Cantor Exchange likely will win approval for its first contracts Monday from the Commodity Futures Trading Commission since the Wall Street reform bill won't be signed into law before July.
Ultimately, however, the final word on movie futures trading by the public likely is to be decided in a court of law. Even if this ban takes effect, it might inspire a private version of futures trading involving investors and the same big movie companies that have vehemently opposed the official exchange plans.
Bob Pisano, interim CEO of the MPAA who has led the fight against the trading on behalf of a coalition that includes the Hollywood guilds, theater owners and the IFTA, said Friday, "We are heartened by the conference committee's actions and look forward to the full House and Senate approving the legislation."
Both Cantor Fitzgerald's Cantor Exchange and Veriana Networks' Trend Exchange declined comment on the action by the House-Senate conference committee, which retained an amendment crafted by Sen. Blanche Lincoln, D-Ark., in the final bill that outlaws futures trading based on boxoffice.
Set in motion long before the legislative action, the legal deadline is Monday for the CFTC to act on the Cantor request for approval of its first products, including futures based on the performance of the movie "The Expendables," starring Sylvester Stallone. The CFTC could approve, deny or just not act, which would be the same as approving.
However, the CFTC never has denied a request in its history. It either works in advance to deal with objections or asks that the proposal be withdrawn before it is voted down. So after months of work on this, Cantor's approval remains likely.
Despite the looming legal ban, neither Veriana nor Cantor is expected to give up easily. Veriana CEO Robert Swagger had indicated they would mount a legal challenge, perhaps charging that the MPAA and its allies violated antitrust laws or claiming that because Veriana got approval for its first products June 15, it should be considered grandfathered into existence.
However, backers of the amendment inserted additional "technical" language into the amendment late Friday, making the effective date for the ban June 1, before Veriana won approval.
Still, backers of futures trading predict the fight isn't over.
"A court may look at the facts and find the MPAA is treading on pretty thin ice," one proponent said. "They don't need to participate, but if they interfere in the economic opportunities of others, they are liable for lost advantages and other damages. It could be considered abuse of their market position."
That probably isn't going to happen, predicted Schuyler Moore, an attorney with Stroock & Stroock & Lavan in Los Angeles who also serves as an occasional THR columnist.
Although he thinks the MPAA and studios "have collectively shot themselves in the foot because this is a source of financing," Moore doesn't think there is an effective legal challenge. "The law absolutely is allowed under the commerce clause of the U.S. Constitution," Moore said. "There is no question this is within the federal government's jurisdiction."
Moore said he had clients ready to invest in movies but are backing off. However, that doesn't mean they might not find another way.
Moore said the thing that scares many people is the public nature of this market. "We're going to try and do a private market," he said. "You will see the same economics tied to boxoffice results, but through private swaps."
Studios could deal with investors they trust and contract to share risk on movies -- just as they do now with slate deals in which investors typically put up half the cost for a portion of the profits. In this case, there might not be any money exchanged in advance, Moore said. Instead, after the movie results are in, the studios would pay off on a hit or get compensated by investors to cover some costs on a flop.
In the meantime, Cantor and Trend Exchange might start up anyway despite the pending law and let opponents file a legal challenge. So though President Obama is expected to sign the bill next month, it could be left to the courts to make the ultimate ruling.